Section 1.07 Appraisal Guidelines

Transcription

1 Section 1.07 Appraisal Guidelines In This Policy Section This policy section contains the following topics. Overview... 3 Introduction... 3 Guideline Summary... 3 Related Bulletins... 6 Appraisers... 7 Appraiser Selection Criteria... 7 Supervisory or Review Appraiser Update... 8 Ineligible Appraisers... 9 Government Appraisal Approved Lists... 9 Appraiser Independence Requirements Scope of the Code Appraiser Engagement Appraiser Requirements In-house Staff Appraisers Appraiser Compensation Settlement Services Provider Prohibited Activities Misconduct Review of Appraised Values General Ineligible Appraisal Reports Exceptions to Ineligible Appraisal Reports Communication with the Appraiser Underwriter Responsibility Borrower Receipt of Appraisal Second Appraisals Determining Equity on Previous Home Non-Arm s Length/Conflict-of-Interest Transactions Property-Flipping Guidelines Agency Loan Programs Non-Agency Loan Programs SunTrust Mortgage Declining Market Index Markets with Declining Values Appraisal Reports and Exhibits Overview Uniform Residential Appraisal Report (Fannie Mae 1004/ Freddie Mac Form 70) (UAD) Market Conditions Addendum to the Appraisal Report (Fannie Mae 1004MC/ Freddie Mac Form 71) Individual Condominium Unit (Fannie Mae 1073/ Freddie Mac 465) (UAD) Small Residential Income Property (Fannie Mae 1025/Freddie Mac 72) Exterior Only Inspection Residential Appraisal Report (Freddie Mac 2055 (UAD). 34 Exterior-Only Inspection Condominium Unit Appraisal Report (Freddie Mac 466) (UAD) Appraisal Update and/or Completion Report (Fannie Mae 1004D/Freddie Mac Form 442) Fannie Mae s DU Property Inspection Waiver (PIW) Appraisal Guidelines Page 1 of 87

2 One-Unit Residential Appraisal Field Review Report (Fannie Mae Form 2000/Freddie Mac Form Two- to Four-Unit Residential Appraisal Field Review Report (Fannie Mae Form 2000A/ Freddie Mac Form 1072) Operating Income Statement (Fannie Mae Form 216/Freddie Mac Form 98) Appraiser Certification to the Appraisal Report Appraisal Upgrades Appraisal Analysis General Information FHA Electronic Appraisal Delivery (EAD) Portal Uniform Appraisal Dataset (UAD) Appraisal Types Required to be UAD Compliant and Submitted to the FHA EAD Portal VA UAD Compliance Subject Property Contract Site Analysis Improvement Analysis Property Condition and Appraiser Comments Valuation Analysis Cost Approach Comparable Rent Data Sales Comparison Approach Adjustments to Comparable Sales Income Approach Final Reconciliation Uniform Collateral Data Portal (UCDP) Energy Efficient Improvements Transfer / Re-assignment of Appraisal Reports Field Reviews Representations and Warrants Compliance Requests for an Updated Value and Re-Certification of Value Appraisal Date Requirements Electronic Transmission Exhibit I: SunTrust Ineligible List Appraisal Guidelines Page 2 of 87

3 Overview Introduction The safety and soundness of mortgage loans secured by real estate depends upon the adequacy of the underwriting supporting the transaction. A valuation of the real estate collateral is an essential component of this process and shall consist of a real estate appraisal. Most real estate collateral valuation requirements are imposed by banking regulations, appraisal standards and statutes/ordinances (i.e., Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, or FIRREA, as amended, the Uniform Standards of Professional Appraisal Practice, or USPAP, etc.). Many of these requirements are incorporated within these guidelines. The purpose of these guidelines is to describe prudent and appropriate valuation practices for use by Correspondent Lenders of SunTrust Mortgage, Inc. These guidelines are intended to incorporate requirements to promote compliance with policies guidance issued by the various regulatory agencies. References: See the topic Appraisal Analysis subsequently presented for additional guidelines and requirements on property appraisals. See the specific product descriptions (i.e. Key Loan Program, Agency, etc.) in the online seller guide under the Products tab for specific appraisal report requirements. Guideline Summary All extensions of credit by SunTrust Mortgage, Inc. shall be supported by a real estate appraisal except for STM-to-STM FHA Streamline Refinance Transactions. All conventional and supplemental appraisal reports must meet Appraiser Independence Requirements. Note: Supplemental appraisal reports include: 1004D/442 Appraisal Update and/or Completion Report 1007/100 Single Family Comparable Rent Schedule 216/998 Operating Income Statement HUD Compliance Inspection Report VA appraisal reports are ordered through the Veterans Administration. The Veterans Administration (VA) requires an appraiser who is assigned by VA, to complete the appraisal. Appraisal Guidelines Page 3 of 87

4 Overview, Continued Guideline Summary, (continued) All conventional appraisals must include color photographs as part of the appraisal exhibits. Delegated correspondent Lenders are responsible for representing and warranting that the loan file was reviewed and underwritten with color photographs. Non-delegated Correspondent Lenders must provide color appraisal photographs in the credit loan package delivered to SunTrust Mortgage. Closed loan packages imaged in black and white will continue to remain acceptable, provided the appraisal photographs are legible. For all loan programs, facsimile (faxed) appraisal reports are not acceptable. At a minimum, regulations require that real estate appraisals utilized in connection with federally related transactions be performed in accordance with the appraisal standards published by the Appraisal Standards Board of the Appraisal Foundation. The Appraiser Independence Requirements are intended to reinforce the independence of the appraiser and establishes requirements governing appraisal selection, solicitation, compensation, conflicts of interest and corporate independence. These regulations require SunTrust Mortgage, Inc. to maintain appraisal policies to ensure that appraisals reflect base level professional competence, negate any direct or indirect interest, financial or otherwise, in the property or transaction, and to facilitate the reporting of estimates of market value upon which institutions rely to make lending decisions. In the interest of safety and soundness, SunTrust Mortgage, Inc. will maintain prudent underwriting policies. Appraisals are an essential component of the loan underwriting process because appraisal reports contain the estimates of collateral values. A real estate appraisal must convey in writing an independent, impartial opinion of value of a particular property and is the result of a complete appraisal assignment performed by a state licensed or certified appraiser (as mandated under Title XI) in compliance with Uniform Standards of Professional Appraisal Practice, or USPAP. Federal agencies require that an institution, or its agent, directly engage the appraiser for the appraisal assignment. SunTrust requirements prohibit the borrower, lender, or any other interested party from influencing the selection of the appraiser. In the interest of safety and soundness, SunTrust Mortgage, Inc., requires lenders to use prudent underwriting policies. Appraisal Guidelines Page 4 of 87

5 Overview, Continued Guideline Summary, (continued) Information Provided to the Appraiser Agency Loans Reference: See Disclosure of Information to Appraisers in the Appraisal Requirements topic outlined in Section 2.01 Agency Loan Programs of the for guidelines. Non-Agency Any and all information about the subject property that the lender is aware of must be disclosed to the appraiser. The appraiser must determine if the information could affect either the marketability of the property or the opinion of the market value of the property. Sales Contract Information All appropriate financing data and sales concessions for the subject property that will be or have been granted by anyone associated with the transaction must be disclosed to the appraiser. Typically, this information is provided in the sales contract. Therefore, the lender must provide, or ensure that the appraiser is provided with, a copy of the complete, ratified sales contract and all addenda for the property that is to be appraised. If the contract is amended, the lender must provide the updated contract to the appraiser to ensure that the appraiser has been given the opportunity to consider any changes and their effect on value. If the lender is aware of additional pertinent information that is not included in the sales contract, the lender must provide this information to the appraiser. Financial Information The list below includes items that must be disclosed, if applicable: settlement charges, loan fees or charges, discounts to the sales price, interest rate buydowns, below-market-rate financing, credits or refunds of borrower expenses, absorption or monthly payments, assignment of rent payments, and any other information not listed above that impacts property value. Property Information The list below includes items that must be disclosed, if applicable: condo or PUD fees, non-realty items included in the transaction, any environmental hazard in or on the subject property or in the vicinity of the property that the lender is aware of or learns from the borrower, the real estate broker, or any other party to the transaction, and any other items that affect the safety, soundness, or structural integrity of a property of which the lender may be aware. Appraisal Guidelines Page 5 of 87

6 Related Bulletins General Related bulletins are provided below in PDF format. To view the list of published bulletins, select the applicable year below Appraisal Guidelines Page 6 of 87

7 Appraisers Appraiser Selection Criteria Agency Loans Reference: See Appraisal Selection Criteria in the Appraisal Requirements topic outlined in Section 2.01 Agency Loan Programs of the for guidelines. Non-Agency Loans SunTrust Mortgage does not require pre-approval of individual appraisers, but has established recommended minimum criteria that all appraisers should meet SunTrust Mortgage may request the Correspondent lender to discontinue use of an appraiser whose work is found to be inconsistent with Fannie Mae/Freddie Mac standards despite any designation the appraiser may hold. The appraiser must meet the following conditions: be currently licensed and/or certified by the state in which the property is located, have a minimum of one (1) year experience as a residential appraiser, must appraise full-time (at least seventy five (75%) of their income must come from appraising residential properties), be current with the Uniform Standards of Professional Appraisal Practice (USPAP), and those of the secondary market, meet educational and experience criteria required by professional appraisal organizations and/or the qualifications criteria as established by the Appraiser Qualifications board of the Appraisal Foundation, show a track record of continued education to stay abreast of current appraisal standards, carry Errors and Omission Insurance with a minimum of $250,000 coverage (if applicable), have specific appraisal experience that is appropriate for a particular appraisal assignment, and must not be listed on any of the following: Freddie Mac s Exclusionary List. SunTrust Ineligible List, FHA s Procurement List, and an Investor s specific Appraiser Exclusionary List. Appraisal Guidelines Page 7 of 87

8 Appraisers, Continued Supervisory or Review Appraiser Update A licensed or certified supervisory or review appraiser may continue to sign the appraisal completed by an employee; however, the licensed or certified appraiser must complete the physical inspection of the subject property. When a licensed/certified supervisory or review appraiser signs the appraisal report on the left hand side of the report form as the appraiser, the supervisory/review appraiser must have performed the inspection of the subject property. The licensed/certified supervisory or review appraiser must not be on the SunTrust Ineligible List. Please see table below for a list of scenario examples to help explain the requirements. Scenario Unlicensed/uncertified (trainee) employee completes the majority of the appraisal work Unlicensed/uncertified (trainee) employee completes the majority of the appraisal work Licensed/certified appraiser completes the appraisal work Licensed/certified appraiser completes the appraisal work. Individual Eligible to COMPLETE the Appraisal Report If state law allows, both an unlicensed/uncertified (trainee) appraiser and a supervisory appraiser A licensed/certified appraiser The licensed/certified appraiser Licensed/certified appraiser and a supervisory appraiser Location of Signature(s) on the Appraisal Report Unlicensed/uncertified (trainee) appraiser signs on the left hand side as the Appraiser and a state licensed or certified appraiser must sign as the supervisory appraiser on the right hand side of the appraisal On the left hand side as the Appraiser On the left hand side as the Appraiser Licensed/certified appraiser on the left hand side of the appraisal and the supervisory appraiser signs the report signs on the right hand side of the appraisal Individual Eligible To Inspect the Subject Property Licensed/Certified appraiser and unlicensed/ uncertified (trainee) appraiser. Licensed/certified appraiser Licensed/Certified appraiser Licensed/certified appraiser Appraisal Guidelines Page 8 of 87

9 Appraisers, Continued Ineligible Appraisers While SunTrust Mortgage, Inc. does not require pre-approval of individual appraisers, SunTrust does maintain a list of ineligible appraisers and appraisal companies. Any appraisers or appraisal companies identified on the list are not eligible to perform appraisal assignments, either directly or indirectly, on properties that secure loans to be funded or purchased by SunTrust. Any appraiser or appraisal company that is currently on the SunTrust Ineligible List and would like information on how to be removed from the list should contact the SunTrust Fraud and Collateral Risk Management Department at 901 Semmes Avenue, 4 th Floor, Mail Code CS-MTG-1934, Richmond, VA The appraiser s and supervisory appraiser s names, if applicable, and company for every loan needs to be checked against this list prior to ordering or accepting an appraisal report. Correspondent lenders warrant that no person or company on the SunTrust Ineligible List is involved in whole or part in the origination of a loan funded by SunTrust Mortgage, Inc. The SunTrust Ineligible List contains confidential information and is only for use by Correspondent lenders of SunTrust Mortgage, Inc. in connection with transactions with SunTrust. Due to the confidential nature of the information contained therein, distribution of the SunTrust Ineligible List is strictly prohibited. By accessing or using the SunTrust Ineligible List, the user agrees to indemnify SunTrust Mortgage, Inc. for any loss, damage, or expense resulting from the user s failure to maintain the confidentiality of the information it contains. Click here to access the SunTrust Ineligible List. Government Appraisal Approved Lists For FHA loans, all appraisers must be listed on the FHA Roster as provided by HUD. For VA loans, all appraisers are assigned by VA in conjunction with ordering case numbers. Appraisal Guidelines Page 9 of 87

10 Appraiser Independence Requirements Scope of the Code The Appraiser Independence Requirements are is intended to reinforce the independence of the appraiser. They establish requirements governing: appraiser selection, solicitation, compensation, conflicts of interest, and corporate independence. The Appraiser Independence Requirements are not intended to establish any new requirements or obligations that require a lender to: obtain an appraisal or use any particular method of property valuation, determine an acceptable scope of work for an appraiser in connection with a particular appraisal assignment, or take any action prohibited by federal and/or state law or regulation. Appraiser Engagement Any employee of the lender that is responsible for selecting an appraiser or appraisal company must be trained and qualified to review an appraisal and be completely independent of the loan and production staff process. Appraiser Requirements An appraiser must be licensed or certified by the state in which the subject property is located. Reference: See the Appraiser Selection Criteria section in these Appraisal Guidelines for additional information. In-house Staff Appraisers Notwithstanding the guidelines above, the lender may use an in-house staff appraiser to order appraisals, conduct appraiser reviews, perform quality control tasks, develop, deploy or use internal Automated Valuation Models; or prepare appraisal for transactions that do not include mortgage origination, such as workout loans, if it complies with the terms of the Appraiser Independence Requirements. Appraisal Guidelines Page 10 of 87

11 Appraiser Independence Requirements, Continued Appraiser Compensation The lender is responsible for selecting and compensating the appraiser. Appraisers are prohibited from accepting compensation for the appraisal assignment directly from the borrower, broker, real estate agent or any third party, with the exception of an Appraisal Management Company. Reference: See the Transfer / Re-assignment of Appraisal Report topic, subsequently presented in this document for additional information. Settlement Services Provider The lender is not allowed to use an appraisal report prepared by an entity that is affiliated in any way with the company providing the settlement services unless the entity that supplies the appraisal has established formal written policies and procedures implementing the Appraiser Independence Requirements which include adequate training and disciplinary rules on appraiser independence. The disciplinary rules must include reporting and disciplining anyone who violates these policies and procedures. Prohibited Activities All members of the lender s production staff are not allowed to select, retain, recommend or influence the selection of an appraiser for a specific appraisal assignment. No employee, director, officer or agent of the lender, or any third party acting as a joint venture, shall influence the results of an appraisal. Examples of such behavior includes the following. Withholding or threatening to withhold future business from an appraiser, or demoting or terminating or threatening to demote or terminate an appraiser. Excluding an appraiser from consideration for future engagement because the appraiser reports a value of a subject property that does not meet or exceed a minimum threshold. Telling an appraiser an anticipated, estimated, encouraged or desired value for the subject property or a proposed or target amount to be loaned to the borrower, except that a copy of the sales contract for purchase transactions may be provided. Withholding or threatening to withhold timely payment or partial payment for an appraisal report. Conditioning the ordering of an appraisal report or the payment of an appraisal fee or salary or bonus on the opinion, conclusion, or valuation to be reached, or on a preliminary value estimate requested from an appraiser. Express or imply a promise of future business, promotions or increased compensation. Requesting an appraiser to provide an estimated, predetermined or desired value or comparable sales prior to the appraiser completing the appraisal, Removing an appraiser from a list of qualified appraisers or adding an appraiser to an exclusionary list of ineligible appraisers in connection with the influencing or attempting to influence an appraisal. Appraisal Guidelines Page 11 of 87

12 Appraiser Independence Requirements, Continued Prohibited Activities, (continued) Providing to an appraiser, appraisal company, appraisal management company, or any entity or person related to the appraiser, appraisal company, or appraisal management company, stock or other financial or non-financial benefits. Any other act or practice that impairs or attempts to impair an appraiser s independence, objectivity or impartiality or violates law or regulation including, but not limited to. the Truth-in-Lending Act (TILA), Regulation Z or the Uniform Standard of Professional Appraisal Practice (USPAP). Ordering or using a second appraisal unless: there is documented evidence that the original appraisal was flawed, or a second appraisal is required per the loan program. If absolute lines of independence cannot be achieved as a result of the lender s size or limited staff, the lender must be able to clearly document that it has safeguards to isolate its collateral evaluation process from influence or interference from its loan production process. Note: The lender is allowed to request an appraiser to provide additional information and/or explain the basis of the valuation or correct factual errors in the appraisal report. Misconduct Any lender that reasonably believes an appraiser or appraisal company has violated applicable laws or is engaging in unethical practices must refer the matter to the applicable state appraiser certifying and licensing agency or other relevant regulatory bodies. Appraisal Guidelines Page 12 of 87

13 Review of Appraised Values General The Underwriter must pay particular attention and apply extra due diligence for loans in which the appraised value is believed to be excessive or where the value of the property has experienced significant appreciation in a short period of time since the previous sale. If the underwriter has concerns with any aspect of the appraisal report that questions the reliability of the opinion of market value, the issues must be addressed with the original appraiser. Changes in the opinion of market value must be based on material and substantive issues and cannot be solely based on the appraisal report not supporting the proposed loan amount. There are three options the Correspondent lender has for addressing concerns: contacting the original appraiser to address the deficiencies in the report, ordering a field review of the original appraisal, or ordering a new appraisal report. If a second appraisal is ordered, the replacement appraisal service must be based on the same level of inspection as the original appraisal. For either a field review appraisal or a new appraisal, the appraiser must be licensed or certified in the state in which the property is located. Whenever a field review appraisal or a new appraisal is ordered, the opinion of market value as stated in the new appraisal report must be used on the transaction. The original appraisal is no longer eligible as it has been deemed defective. The opinion of value may not be arbitrarily changed, nor is it acceptable to average the two opinions of market value in order to arrive at a final value conclusion. Ineligible Appraisal Reports Appraisal reports prepared by the following are not allowed: any employee of the lender (full time, part time, or contractor), any affiliate of the lender, any entity that is owned, in whole or in part, by the lender, any entity that owns, in whole or in part, the lender, and appraisers selected, retained or compensated in any manner by any third party (including mortgage brokers and real estate agents). Appraisal Guidelines Page 13 of 87

14 Review of Appraised Values, Continued Exceptions to Ineligible Appraisal Reports Exceptions to the above Ineligible Appraisal Report restrictions are acceptable as follows: An appraiser employed by the lender that is not affiliated with the sales and production departments of the company. Employees in the sales and production functions of the lender that do not have ANY involvement in the approval, selection, recommending, retaining or influencing the selection of the appraiser or adding/deleting an appraiser to an approved or disapproved appraiser list. Employees in the sales and production functions that are not allowed to have any substantive communications with the appraiser, appraisal company or appraisal management company. An appraiser employed by the lender who s compensation does not depend on the subject properties determined value or the closing of the subject property loan transaction. The lender s appraisal functions are annually audited by an external auditor or are subject to federal or state regulatory examination. The lender must promptly report any adverse, negative or irregular findings of non-compliance to Fannie Mae or Freddie Mac, whichever is applicable and is not prohibited by law. Communication with the Appraiser All members of the loan production staff are not allowed to have any communications with an appraiser or appraisal management company relating to or having an impact on valuation. Production staff includes, but is not limited to, the following employees: Loan Officers, Loan Officer Assistants, Account Executives, Sales Managers, and Operations or Branch Managers. Underwriter Responsibility When an appraisal is ordered, an underwriting condition should be added to the file requiring one of the 2 following forms: Appraisal Report Waiver form which is required at least three (3) business days prior to closing, or the executed Appraisal Report Acknowledgement form. The loan cannot be purchased by SunTrust without one (1) of these two (2) executed documents. Reference: See the following topic, Borrower Receipt of the Appraisal for additional information. Appraisal Guidelines Page 14 of 87

15 Borrower Receipt of Appraisal General The Correspondent lender must provide a copy of any and all completed (approved, defective) appraisal report(s) and all property valuation(s) to the borrower(s) promptly, but not less than three (3) business days prior to closing the loan transaction. If the transaction is denied, withdrawn, and/or cancelled, any completed appraisal and/or property valuation must be sent to the borrower within 30 days of denial, withdrawal, and/or cancellation, if not sent prior to the status change. Note: An example of how the three (3) days are counted is as follows: The borrower receives the appraisal on Tuesday. The three (3) day count begins on Tuesday. The days counted would be Tuesday, Wednesday and Thursday. Borrower can close on Thursday. The borrower is responsible for the initial cost of the appraisal, but the lender cannot charge the borrower for a copy of the appraisal. One of the following forms MUST be signed by all borrowers on the loan transaction and included in the loan file prior to purchase: Appraisal Report Waiver This form allows the borrowers to waive their right to receive a copy of the appraisal report three (3) business days prior to loan closing. This form must be signed by at least one borrower and may be signed anytime as early as loan origination, but not later than three (3) business days prior to closing. This form cannot be signed less than three (3) business days prior to closing or at closing. Appraisal Report Acknowledgement This form must be signed by at least one borrower to acknowledge their receipt of the appraisal report. This form cannot be pre-dated or pre-signed prior to the borrower s actual receipt of the appraisal report. If the borrower(s) sign the Appraisal Report Waiver form waiving their right to a copy of the appraisal report no less than three (3) business days prior to closing, the Appraisal Report Acknowledgement form is not required and vice versa. Only one of these executed forms is required to be in the loan file at the time of purchase by SunTrust. Appraisal Guidelines Page 15 of 87

16 Second Appraisals General Agency Non-AUS A second appraisal is only allowed to be ordered if: there is reasonable basis to believe that the initial appraisal was flawed or tainted and the basis is clearly documented in the loan file, or a second appraisal is a requirement of the loan program. Fannie Mae DU Follow DU requirements, which are the same as non-aus guidelines. Freddie Mac LPA Not eligible Non-Agency A second appraisal is only allowed to be ordered if: there is reasonable basis to believe that the initial appraisal was flawed or tainted and the basis is clearly documented in the loan file, or a second appraisal is a requirement of the loan program. If an appraisal report is not acceptable, the underwriter may require the appraiser to provide additional information regarding how the value was determined and/or require the appraiser to correct material errors within the appraisal report. The underwriter is responsible for determining if an appraisal is defective. If a second appraisal or field review is required by the loan program, the second appraisal or field review ensures that the appraisal is an accurate representation of value. If the opinion of value is different than the original appraisal, the lowest of the original appraisal, field review or second appraisal or sales price (for purchases) is used to calculate the LTV ratios. If an additional appraisal service is ordered because the first appraisal was deemed deficient, the underwriter must use the value of the second appraisal in determining the LTV/TLTV, regardless if the market value is higher or lower than the original appraisal. However, if the second appraisal is also deemed deficient, the loan will be ineligible for sale to SunTrust. Note: Desk Review Appraisals are not eligible as an additional appraisal service. Examples of a flawed appraisal may consist of: inappropriate comparable sales, unsupported adjustments, comparable sales outside the market area, miscalculated square footage, and erroneous room counts. Continued on Next Page Appraisal Guidelines Page 16 of 87

17 Second Appraisals, Continued General, (continued) Loan program requirements for second appraisals are as follows: Loan Program Appraisal Requirements 1 Key Loan Loan amount or combined total loan amount, including second mortgages and home equity lines of credit < $1,500,000 require one (1) full appraisal.,2 Key Loan Loan amount or combined total loan amount, including second mortgages and home equity lines of credit >/= $1,500,000 1 For HELOCs, the total line of credit must be included (for qualifying) in the combined loan amount. 2 Two full appraisals are required on family transfer transactions when the loan amount or combined loan amount is >/= $1,000,000. Determining Equity on Previous Home General Some loan products may require documentation to establish equity in a borrower(s) current primary residence to reduce the amount of assets required in a purchase transaction for a new primary residence. Examples includes: The borrower is purchasing a new primary residence; however their current residence is under contract but will not close prior to the new loan transaction closing, The borrower is converting their current primary residence into a second home and is purchasing a new primary residence. The borrower is converting their current primary residence into an investment property and needs to use the rental income for qualifying. To document the equity in the current primary residence, the Correspondent lender must order an appraisal for the current primary residence to determine current amount of equity in the property. Non-Arm s Length/Conflict-of-Interest Transactions General Agency Loan Programs Reference: See Non-Arm s Length Transactions in the Eligible Transactions topic outlined in Section 2.01 Agency Loan Programs of the for guidelines. Non-Agency Loan Programs Reference: See Section 1.40: Non-Arm s Length/Conflict-of-Interest of the for specific appraisal requirements. Appraisal Guidelines Page 17 of 87

18 Property-Flipping Guidelines Agency Loan Programs Transactions Considered to be Property Flips The term property flip refers to a transaction in which a property is purchased and quickly resold for a significant profit. A large increase in property value coupled with a short time period between transactions may indicate that the property is being flipped. Properties targeted for property flips generally include properties that can be acquired at lower prices than other properties in the same neighborhood and often include real estate owned (REO) properties, properties subject to a "short sale", other distressed properties or newly constructed properties where the builder or developer must liquidate housing inventory quickly. A property involved in a flip may be resold on the same day or within days, weeks, or months of the purchase. In some cases, the seller of a property flip never holds title to the property, but instead sells or assigns their interest in a contract to purchase the property to a third party. Property flips are not inherently illegal and not all transactions involving a rapid purchase and resale are improper. Legitimate property flips are acceptable transactions in connection with loans originated by SunTrust Mortgage. Some indications of property flip transactions that may be legitimate include: Sales of properties by a Government Sponsored Enterprise, state or federally chartered financial institution, mortgage insurer, or federal, state or local government agency Property sales by employers or relocation agencies related to employee relocations Sales of properties that are acquired by the property seller through inheritance, divorce, or as a result of a legal settlement or proceeding Sales of properties that have been substantially improved by bona fide and verified renovations since the property was acquired by the property seller in which any increase in sales price over the seller's acquisition costs is representative of the market given the improvements to the home Sales of properties that the property seller acquired at below market value after purchasing as a result of a distress sale (i.e. REO sale, short sale, tax lien sale, bankruptcy trustee's sale, etc.), where any increase in the sales price over the property seller's acquisition cost can be clearly shown to be a result of the difference (if any) in the market's reaction to distress sales and typical arms-length market sales. Appraisal Guidelines Page 18 of 87

19 Property-Flipping Guidelines, Continued Agency Loan Programs, continued Characteristics that are Red Flags for Improper "Property Flip" Transactions Certain characteristics of a transaction may be red flags that may be indicative of an improper property flip scheme. These characteristics include, but are not limited to: Appraisal lacks sufficient analysis of all pertinent offerings or listings for the subject property, the contract of sale for the subject property, and the sales/transfer or listing history of the subject property and comparable sales Comparable sales or listings used in the appraisal report are properties involving the same property seller and/or real estate broker as the subject property in an attempt to create an artificially inflated market Transactions in which the property seller or any other party claims that the property was significantly renovated since being acquired by the property seller but the claimed renovations were not actually performed or cannot be sufficiently documented. Improper transactions often use inflated appraisals that falsely claim to be justified renovations. Transactions in which there appear to be unusually large profits for the property's market area without appraisals that provide a reasonable explanation and justification for the large increase in property value. Transactions in which the property was acquired by the property seller as a part of a distress sale in which the property seller, or a related party was a party to an option contract to purchase the property from the prior owner for an option price substantially below actual full market value. The option contract and the true market value of the property are typically not fully disclosed to the prior lender. Transactions in which the property seller, or an agent representing the seller, arranges or assists in arranging financing, settlement services or the appraisal, including some cases where the property buyer and seller are represented by the same real estate agent or broker (dual agency). Some improper transactions result from collusion between the seller, real estate broker, lender/loan officer, and appraiser to defraud an unwitting buyer. Transactions in which the contract seller is not the current owner of record. Undisclosed "simultaneous", "double", or "back to back" closings or escrows. Purchase transactions with undisclosed secondary financing, in which part of the purchase price is refunded to the buyer, or is quickly followed by a cash-out refinance. Such payments may or may not be reflected on the settlement statement. Appraisal Guidelines Page 19 of 87

20 Property-Flipping Guidelines, Continued Agency Loan Programs, continued Confirmation and Documentation of the Current Owner Confirmation that the property seller in a purchase money transaction (or the borrower in a refinance transaction) is the owner of the subject property based on publicly available information helps to identify property flipping schemes, which typically involve various combinations of transactions and result in a sale of a recently acquired property for significant profit based on a misleading or fraudulent appraisal with an inflated property value. Lenders must confirm and document in the mortgage file that the property seller in a purchase money transaction or the borrower in a refinance transaction is the owner of the subject property when an appraisal is required. Note: If the transaction involves the sale of land separate from the dwelling, confirm the property seller listed on the sales contract for the land is the owner of record for the land. Examples of acceptable documentation include, but are not limited to: a copy of a recorded deed, mortgage, or deed of trust, a recent property tax bill or tax assessment notice, a title report, a title commitment or binder, or a property sale history report. This documentation is especially important for transactions involving an assignment (or sale) of a contract for sale and back-to-back, simultaneous, double transaction closings, or double escrows to support the property acquisition, financing, and closing. When the transaction is part of an employee relocation, the relocation company may be the assignee of the seller, which should be indicated on the sales contract. Additionally, the appraiser must comment on this condition in the appraisal report. Best Practices for Loans Involving Property Flips or Suspected Property Flips Obtain a full appraisal with an interior and exterior inspection reported on the form appropriate for the property type being appraised. Use automated valuation models and other collateral risk assessment tools in the origination and pre-funding quality control process to detect fraud and objectively measure the accuracy of the appraisal. Ensure that the appraised value is adequately supported by market data and that appropriate comparable sales were utilized in the appraisal report. Appraisal Guidelines Page 20 of 87

21 Property-Flipping Guidelines, Continued Agency Loan Programs, continued Ensure that the appraisal sufficiently analyzes all pertinent offerings or listings for the subject property and includes sufficient analysis of the contract of sale for the subject property. Pay special attention to the appraiser's comments and analysis to determine if the appraiser provided adequate justification for any significant increase in sales price/value over the seller's acquisition costs. This analysis should be detailed enough to clearly explain the methodology and rationale used to justify the appraiser's conclusions on this issue. A statement by the appraiser that the new appraised value is justified by the current market conditions without detailed analysis and discussion is not sufficient. Ensure that the appraisal lists any changes made to the property and includes photographs of the rehabilitation or renovation whenever an increase in sales price/value is justified in whole or part by improvements made to the property. Obtain further documentation that such improvements were made after the property seller acquired the property. Such documentation could include copies of receipts, contractor invoices, building permits issued or other similar documentation. Perform additional due diligence by obtaining either a field or desk review of the appraisal or a second appraisal if it is suspected that the increase in sales price/value is unreasonable or unusually large within the context of the property's market. Miscellaneous Underwriting/Closing/Title Issues Perform additional due diligence in reviewing the chain of title of the property including a search of the public land records for any recorded options contracts on the subject property and research any recent title transfer activity. Exercise additional due diligence to reconcile any differences in the owner of record as reported in the appraisal or any other documentation including the title report. Exercise additional due diligence when analyzing sales contracts and other documentation. Carefully analyze sales contracts looking for terms indicating there has been assignment or sale of the seller's interest in a contract or option to acquire the property. Analyze and review estimated and final Settlement Statements for unusual payments to parties not having a recorded interest on the property and abnormal real estate commission payments. Appraisal Guidelines Page 21 of 87

22 Property-Flipping Guidelines, Continued Non-Agency Loan Programs Overview Property-flipping is defined as the purchase of an existing property with the intention of quickly reselling the subject property for a considerable profit. For the purposes of these guidelines, a quick sale, is defined as any property resold six (6) months or less from the date of acquisition by the seller. The underwriter has discretion to require any and/or all of the provisions contained in these guidelines (regardless of the time frame) in order to substantiate the appraised value. Property-flipping, in and of itself, is not illegal; however, when an immediate resale is accompanied by acts of fraud or misrepresentation (appraisals with inflated property values and other misleading or fraudulent documentation), it can result in a predatory transaction. For the purposes of these guidelines, assignments of a contract for sale fall under the definition of a property-flip and are not allowed unless used for loan transactions involving an employee being relocated. These guidelines apply to conventional loans only. For government loans, refer to FHA and VA guidelines for specific requirements. SunTrust Mortgage (SunTrust) strictly prohibits unacceptable propertyflipping schemes; however, recognizes that there are legitimate business practices of buying real estate at a wholesale or discounted price and reselling it for the property s fair market value. In order for SunTrust to consider these types of transactions, all of the requirements in this section must be met. The following resale transactions are not defined as property flips; however, the property seller MUST be the owner of record in all cases: property obtained through an inheritance, property that is part of a settlement in a divorce agreement, property that is part of an employee relocation program, and property that is resold by a lender/servicer after acquisition of the property from a foreclosure or deed in lieu of foreclosure. Agents or subsequent owner(s) of the property that acquired the property directly from the lender are not considered the lender. Notes: In cases of employee relocation programs, assignments of contract for sale are common and may be necessary. An assignment of contract for sale with a special Power of Attorney (POA) gives the relocation company limited ability to negotiate, execute and deliver real estate contracts for the subject property on behalf of the property seller (the employee). In these situations, the seller (the employee) remains the owner of record and it is acceptable for the relocation company to be identified as the seller on the sales contract. Therefore, execution of documents may be done by the relocation company/poa instead of the seller (the employee) of the property. Appraisal Guidelines Page 22 of 87

23 Property Flipping Guidelines, Continued Non-Agency Loan Programs, continued If an assignment of contract for sale is exercised due to an employee relocation program, documentation such as, but not limited to the following must be included in the loan file to evidence the assignment. copy of the Assignment of Contract for sale, copy of Power of Attorney (if applicable), copy of Appointment of Special Agency and Assignment of Proceeds form, and copy of Employer Relocation Policy. Owner of Record The property seller in a purchase money transaction or borrower in a refinance transaction must be the owner of record. Examples of acceptable documentation, to be placed in the loan file include: the appraisers analysis and conclusions in the appraisal report, a copy of the recorded deed or mortgage, a recent property tax bill or tax assessment notice, a title report, a title commitment or binder, or a property sale history report. This documentation is especially important for transactions involving backto-back, simultaneous closings, or double transaction closings to support the property acquisition, financing and closing. In instances when the transaction is part of a corporate relocation, the relocation company may be the assignee of the seller, which should be indicated on the sales contract. Additionally, the appraiser must comment on this condition in the appraisal report. Underwriting Analysis A detailed underwriting analysis of the appraisal must be performed that includes: the current contract for sale, including all addendums, for the subject property, the current offering or listing for sale for the subject property, if sold utilizing a realtor, the current ownership of the subject property, and a three (3) year sale (or transfer) history of the subject property and a one (1) year sales history of the comparable sales. If, during the brief period of ownership (six-month quick resale), the seller renovated the subject property resulting in a twenty percent (20%) or twenty thousand dollars ($20,000) increase over the previous sales price, the appraiser must provide interior photographs reflecting the recent improvement(s) described in the appraisal report. It is critical to analyze and review the sales of the subject property and the sale price trend in relation to the appraiser s opinion of value to confirm that they are reasonable and representative of the market. On those transactions where the appraisal was assigned to SunTrust Mortgage (SunTrust), the underwriter may elect to require a new appraisal to substantiate the above requirements. Appraisal Guidelines Page 23 of 87

24 Property Flipping Guidelines, Continued Field Review Appraisal Field Review Appraisal The following guidelines apply for non-agency conventional loan transactions only: For properties resold ninety (90) days or less following the date of acquisition by the seller and the sales price has increased by twenty percent (20%), or twenty thousand dollars ($20,000) (whichever is higher), then SunTrust requires that a Field Review Appraisal be obtained. The acquisition date is defined as the date of settlement on the seller s purchase of the subject property. The resale date is defined as the date of execution of the sales contract, by the buyer. Appraisal Guidelines Page 24 of 87

25 SunTrust Mortgage Declining Market Index Overview The SunTrust Mortgage Declining Market Index must be reviewed for all loan transactions to determine if the subject s market is experiencing declining values. SunTrust Mortgage, Inc. will publish the SunTrust Mortgage Declining Market Index, which is a list of soft or declining markets, quarterly, or as market conditions change. The individual reviewing and/or approving the appraisal must review the SunTrust Mortgage Declining Market Index to determine if the subject property is impacted. It is imperative that the individual reviewing and/or approving the appraisal review the SunTrust Mortgage Declining Market Index and be familiar with the index as it relates to their local market. If the subject property is identified on the SunTrust Mortgage Declining Market Index, then the Declining Market Guidelines must be followed. The SunTrust Mortgage Declining Market Guidelines do not apply to Agency, FHA or VA transactions. If the loan transaction requires mortgage insurance, the more restrictive of the SunTrust or MI Company Declining Markets Guidelines will apply. Reference: See Section 1.09: Declining Market Guidelines of the Correspondent Seller Guide for declining market appraisal guidelines. Markets with Declining Values Overview A property shall be deemed to be located in a declining market if any of the following apply: The appraiser has marked the appraisal that property values are declining or referenced that values are declining in the appraisal comments, OR The SunTrust Mortgage Declining Market Index indicates a declining market. If it has been determined that the subject property is located in a declining market, the guidelines in the Declining Market Guidelines must be followed. Reference: See Section 1.09: Declining Market Guidelines of the Correspondent Seller Guide for declining market appraisal guidelines. Appraisal Guidelines Page 25 of 87